VATs are also regressive just like sales taxes. Also incredibly complex to keep track of and calculate. If anything adds to expense of doing business as well as the bureaucracy in the tax collecting entities.

Transactions go down, returns go down.

Transactions go down, returns go down.

Bill
I’m watching the game and babysitting the G’kids overnight on a school night, so can’t give lots of details but one the factors that the cap rate should help with is one Ive dealt with.

Buying pieces of real estate, maintaining them and then 25-35 years later a sale is made. Yes I may have bought it for a song in today’s world. However when sold after years of inflation I pay taxes on the selling price. No adjustment for inflation. None. Has in many cases eaten up the potential “profit” or value of the asset you thought you had.

Why should the government enjoy double taxation on the “gains”, really gains? I laugh at my statement. Or is it triple? I paid on the income it produced every year at the individual rates, paid on top of that the cap gains tax on the “inflated” value of the property many years later and also paid increasing property taxes each year on the “assumed” value increases…

What you miss also is that investment decisions are not made in a vacuum. If you change the rates after the purchase is that “fair”? I look back at the “savings and loan” crisis. Many will disagree with me but the “crisis” in commercial real estate was caused by our congress-critters. They changed the depreciation tables for many buildings etc. No I’m sorry ma’am or anything to the owners or their financial institutions. Values plummeted because of changes in taxes. Econ 101, I think. This caused capital problems for S&L’s, banks etc and poof we have a “crisis”. All so the elite can control more $’s.

Looking at the info and charts I’m trying to attach it looks like if a property increased in value from $100,000 in 1970 to 725,000 in 2022 I’d be even. No tax, right?

Oh my nope. Pay your cap gains rates after recapture of depreciation of 20+%. In our neck of the “red”, I live here I can say it, we are lucky to see a 4-5 fold increase in value over that time frame. Hmm foolish aren’t I Tony…

Chuck,

Not lost on me. But what is the alternative? Not to tax cap gains? As a business owner, I too will get "double taxed". Taxes on ordinary income for operating years. Taxes when we eventually sell. And if the value of a business is the present value of the future value of the cash flows of the business, am effectively getting taxed on future income of the new owners.

I get it... but I still don't think that the tax code should treat the income streams differentially.

Also agree that the gov't in all forms, meddles way too much in the economy. Causes all kinds of havoc.

On the inflation point, if one is paying taxes after a number of years, and there has been inflation, arguably, one is paying back the taxes with dollars that are worth less. I am having difficulty with a scenario in which the asset has gone up due to inflation, (rather than intrinsic value), and there has been no monetary impact of inflation.

Ok, have beaten this one up enough. I quit.... back to airplanes & airplane prices.

Bill, you’ve made some interesting points. I generally don’t mind capital gains being treated differently but I can also understand (at least, I think) why some people think it should all be treated equally.

You made one comment above that I’d be interesting in hearing you defend a bit, and I’ll throw out the questions your comment made me think about.

This is scenario assumes we are talking about an entrepreneur selling a small business.

1) isn’t the idea of capital gains that you are benefiting from the appreciation of the value of the ongoing nature of the business and not the labor contribution itself?

Phrased another way, isn’t it reasonable that there is a different bucket of rules for a different bucket of money?

2) Isn’t the favorable capital gains tax rate designed to be one of the benefits for the early days where the owner is basically donating their time to the business?

3) If an owner puts X thousands into a business at the expense of utilizing their money elsewhere, should they be rewarded in some fashion for that postponement?

I believe tax codes are a reflection of society’s values. We have historically upheld economic progress and I believe question 3 is a reflection of that value. I am not sure treating capital gains and income identically reflects that same idea.

Hopefully this makes sense. If my questions were confusing (I’m afraid they may be worded poorly) just say so and we can move on

???? The sale of privately owned single owner businesses is rounding error. You are completely off base on what capital gains represents.

Imagine for a second what the tax rates would look like if the world lost faith in the stability of the USA.

(This is a great thread. I feel very fortunate to be able to read all of the smart opinions presented here)

???? The sale of privately owned single owner businesses is rounding error. You are completely off base on what capital gains represents.

We can’t have that, even criminals who don’t report income would have to pay VAT when they spend their I’ll gotten gains.

Bill, you’ve made some interesting points. I generally don’t mind capital gains being treated differently but I can also understand (at least, I think) why some people think it should all be treated equally.

You made one comment above that I’d be interesting in hearing you defend a bit, and I’ll throw out the questions your comment made me think about.

This is scenario assumes we are talking about an entrepreneur selling a small business.

1) isn’t the idea of capital gains that you are benefiting from the appreciation of the value of the ongoing nature of the business and not the labor contribution itself?

Phrased another way, isn’t it reasonable that there is a different bucket of rules for a different bucket of money?

2) Isn’t the favorable capital gains tax rate designed to be one of the benefits for the early days where the owner is basically donating their time to the business?

3) If an owner puts X thousands into a business at the expense of utilizing their money elsewhere, should they be rewarded in some fashion for that postponement?

I believe tax codes are a reflection of society’s values. We have historically upheld economic progress and I believe question 3 is a reflection of that value. I am not sure treating capital gains and income identically reflects that same idea.

Hopefully this makes sense. If my questions were confusing (I’m afraid they may be worded poorly) just say so and we can move on

Chuck, your real world and completely realistic example is messing up my narrative. You should just pay your fair share. Same as the rest of you rich people!

Chuck,

Not lost on me. But what is the alternative? Not to tax cap gains? As a business owner, I too will get "double taxed". Taxes on ordinary income for operating years. Taxes when we eventually sell. And if the value of a business is the present value of the future value of the cash flows of the business, am effectively getting taxed on future income of the new owners.

I get it... but I still don't think that the tax code should treat the income streams differentially.

Also agree that the gov't in all forms, meddles way too much in the economy. Causes all kinds of havoc.

On the inflation point, if one is paying taxes after a number of years, and there has been inflation, arguably, one is paying back the taxes with dollars that are worth less. I am having difficulty with a scenario in which the asset has gone up due to inflation, (rather than intrinsic value), and there has been no monetary impact of inflation.

Ok, have beaten this one up enough. I quit.... back to airplanes & airplane prices.

Interestingly no one has defined what a "fair share" is.

Interestingly no one has defined what a "fair share" is.